Taking Advantage of TFSAs


A great way to save for any financial goal.

One question that often arises is whether it’s better to invest in a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP). If possible, why not consider both?

With very few exceptions, RRSPs are for retirement savings. TFSAs, on the other hand, can be used to fund almost any short or long-term financial goal. Here are three reasons to make the TFSA part of your financial plan.

1. Flexibility
Yes, you can use your TFSA to supplement your retirement savings. Or you can use it to help you meet your short-term goals such as buying a car, taking a vacation or renovating your home. Your TFSA is also flexible enough to serve as an emergency fund so you can enjoy peace of mind and be financially prepared to take care of unexpected repairs or replace a major appliance that’s beyond repair. 

Unlike most other types of registered savings plans, the government imposes no rules on how you use the funds in your TFSA. You can withdraw your money any time and for any reason. Whatever amount you withdraw from your TFSA in a given year is automatically added to your contribution limit for the following year, so you never lose any contribution room. You can also hold most types of investments within your TFSA, from cash and money market instruments to mutual funds to stocks and bonds.

2. Tax-free growth and withdrawals
Contributions to your TFSA aren’t tax deductible, but you also won’t pay any tax on money you withdraw from your account. You won’t pay tax on any investment income you earn within the account, either.

Because TFSA withdrawals aren’t considered taxable income, they have no impact on income-tested benefits like the Guaranteed Income Supplement or Employment Insurance. With such benefits, the amount you receive may be reduced if you exceed certain taxable income thresholds, but TFSA withdrawals are exempt from this income-testing calculation. 

Similarly, if you’re using your TFSA to help fund your retirement, any withdrawals you make from the account won’t affect your eligibility for Old Age Security, or reduce any amounts you’re entitled to.

3. Retirement planning
When planning for your retirement, an RRSP is a key savings vehicle. However, your TFSA can be a great option to enhance your future retirement income. RRSP contribution limits are set at 18% of earned income, up to a maximum annual limit. If you’ve already maxed out your RRSP contributions, consider using a TFSA to save even more. When incorporating a TFSA into your overall investment strategy, it helps to know the contribution rules. For 2017, the contribution limit is $5,500, while the cumulative contribution limit is currently $52,000. What this means is if you haven’t incorporated a TFSA into your plan, you can open one today, and regardless of how much money you made last year, take advantage of your cumulative contribution room. 

Call our office today to talk about setting up a TFSA with the right mix of investments for you. 
The Paskevich-Clark Team

5718 - 1A Street SW, Suite 202
Calgary,AB, T2H 0E8
Phone:403.777.1170
Fax: 403.266.2835
E-mail: info@ipcc-calgary.com
Web: http://www.ipcc-calgary.com